HSBC 'targets Bank of Shanghai'

A STEP BACK in history is reported to be planned by HSBC Holdings through the purchase of a stake in Bank of Shanghai. HSBC is rumoured to be ready to pay up to £45m for an 8% holding in what is one of the dominant banks in the city where it put down its roots almost 140 years ago.

Such a deal would make HSBC the first foreigner allowed a direct interest in a mainland China bank, giving it a valuable lead in the scramble for presence in the country following its accession to the World Trade Organisation.

Although HSBC spokesmen in Hong Kong refused to comment on the Bloomberg report, local analysts said the move would make good sense.

Shanghai is emerging as a major financial centre and will pose a threat to Hong Kong's dominance of markets. Bank of Shanghai is profitable and suffers less from the bad debts that threaten the future of the major national banks that have buried themselves in non-performing loans to State enterprises facing collapse in the wake of rapid reforms.

The attraction for HSBC and other foreign banks is the huge amount of money held in bank accounts or under mattresses by savers who have not been offered the banking services available in Western economies.